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A favorable employment report on Friday led the stock market to its fourth consecutive weekly gain and a three-month high on Friday. U.S. payrolls added 163,000 jobs in July, above the 95,000 expected, giving investors some hope that the economy will manage to shuffle along, instead of falling into a recession.

The Dow gained 217.29 points Friday to hit 13,096.17, reversing losses from earlier sessions. The index rose 20 points, or 0.16%, on the week. Likewise, the Standard & Poor's 500 rose 25.99 points Friday, bringing its weekly haul to five points, and leaving the index at 1390.99—10.6% higher than it started 2012. The Nasdaq Composite wasn't left behind. It gained 58.13 points on Friday, ending 9.81 points higher on the week at 2,967.90.

The July jobs numbers offset some of the disappointment investors had after both the Federal Reserve and the European Central Bank failed to act on recent rhetoric that they would move to help the economy. Milton Ezrati, senior economist and market strategist at Lord Abbett, believes the ECB may announce a plan to provide liquidity within the next two weeks and he'd expect the markets will continue to rally on the news.

"We think the market over the next six to 12 months will return more than 10%," he says. That's in addition to the gains the market has already enjoyed this year. If the economy can grow 2%, and inflation runs about 3%, he believes companies can grow revenue 6% to 7%, especially if they have international exposure. So even if there is no margin expansion, corporate earnings should improve moderately. Not bad for a sluggish economy.

THE BIG SURPRISE of the week was the $440 million loss racked up by Knight Capital Group (ticker KCG) in just 40 minutes. Thanks to a software glitch, the company accidentally bought almost 150 stocks on Wednesday. It sold those stocks to Goldman Sachs at a loss.

Knight stock collapsed from $10.31 at the week's start to a low of $2.27 on Thursday, then bounced more than 50% to $4.05 on Friday on reports that the company secured a line of credit.

Knight might not be well known on Main Street, but it is a vital part of the equity markets. The firm is the largest secondary trader of U.S. equities, trading 15% of the stocks listed on the New York Stock Exchange in the first half of this year and 16% of those listed on Nasdaq. You may not think you're trading with Knight but the trade that you send to your broker may find its way to Knight to be executed.

Knight is reportedly working to raise equity, which isn't surprising given it only had $336 million of cash on its balance sheet as of June 30. But even if it manages to raise the capital it will have to repair its reputation and convince the Street it's safe to trade with them again. By the close on Friday, TD Ameritrade and Scottrade had resumed trading with Knight, while Vanguard Group and Fidelity Investments reportedly continued to trade elsewhere.

"Knight has a very strong reputation and was known for staffing up with smart people," says one equity trader. Adds Larry Tabb, founder of the research firm TABB Group: "They have a great business and it's amazing that in 40 minutes you can do that much damage to a company like Knight."

Knight's software nightmare is just the latest in a spate of market malfunctions. Think JPMorgan's big trading losses, the flubbed Facebook and Batts IPOs, MF Global, and the infamous Flash Crash of 2010. One potential solution: Increase the difference between where investors can offer to buy and sell stocks, particularly on mid- and small-cap stocks. The spread is now a penny and Tabb thinks it should be wider to improve liquidity and slow down the market.

"My viewpoint over the last year and a half has really changed," says Tabb, who previously thought narrow spreads and more technology would improve liquidity across the markets. "This market is not robust."

THERE'S NO DOUBT that
Lululemon Athletica's
lulu -2.4151726181656543%lululemon athletica inc.U.S.: NasdaqUSD65.86
-1.63-2.4151726181656543%
/Date(1425413815800-0600)/
Volume (Delayed 15m)
:
1075049
P/E Ratio
40.15853658536585Market Cap
9583076535.91696
Dividend Yield
N/ARev. per Employee
225100More quote details and news »luluinYour ValueYour ChangeShort position
(LULU) popular exercise clothes have a strong fan base online. However, in recent months the lovefest has in some cases been replaced with anger. Some customers are complaining that the seams aren't well constructed and that color from some of the clothing is bleeding when it gets wet, giving a whole new meaning to the phrase "running clothes."

The uproar prompted a letter from LuLu's chief product officer Sheree Waterson, posted on the company's Facebook page. The company is working with its manufacturers to find a solution. "We've brought in the leading fabric and dye expert, along with additional on-site quality inspection at every stage to identify potential causes. We are also testing more variables on how our garments are washed (hard water, soft water, detergents, hot/cold etc) to see if we can replicate and therefore solve the issues you are experiencing."

The commotion attracted Wall Street's attention. Sam Poser, an analyst with Sterne Agee, wrote that the Facebook note was "flying around Wall Street recently and hurt the stock, in our opinion."

But Poser continues to have a Buy recommendation and an $85 price target on the stock, which trades at $56.74. The letter indicates LuLu is taking customer complaints seriously and is working on the problem. The company now puts a sticker on certain clothes warning that they should be washed separately. The company's customer-focused culture "won't let this continue," Poser says. "My guess is this will never happen again."

John Morris, an analyst with BMO Capital Markets, makes the problem sound a bit more serious. In response to the complaints, he writes, the company amended its 14-day "with tags on" return policy. It now allows worn garments to be returned any time for an exchange or refund if they do not meet its quality standard, a tacit acknowledgment of the problem's scope.

"Because this is a grass-roots company, we think this is a significant customer-relations issue that could tarnish the brand's reputation among LuLu's loyal customer base and possibly result in lost sales. Based on our surveys, we think customers may proceed with caution until the problem is remedied." Morris has a Market Perform rating on the stock and a $61 target price.

In response to Barron's inquiries, a LuLu spokeswoman wrote: "While we do have an issue with a small amount of product, the number of actual units affected from bleed was a very small percentage of units shipped, so it is difficult to identify the root cause. We have used the same manufacturers for years and the issue is not due to any change in quality.…we are not changing our return policy, but have simply made sure our [customer service reps] are prepared to handle defect returns with more sensitivity. We take all concerns about quality very seriously, hence the letter that we posted to Facebook last week. The intention was to address the concerns of our guests and let them know that they have been heard."

LuLu shares have fallen almost 30% from $80 in early May, but they still trade at lofty levels: 28 times 2013 earnings. There's a huge short position in the stock—roughly a quarter of the float sold short—so going short could be dangerous. The best course may be to simply avoid the shares until the company manages to clean up the situation.

Last week the company, which sells Stella-Artois, Bud, Corona and Beck's beer, reported that second-quarter profit rose 35% but the shares barely budged. Profit was bolstered by higher prices and some investors were worried that sales volume fell 1.8% last quarter in North America, which accounts for about a third of the company's sales. Shares ended the week largely unchanged at $81.75.

Brett Cooper, an analyst at ConsumerEdge Research, continues to have an Outperform rating on the stock and a $94 target price, in part because he's optimistic about the company's acquisition of Modelo, which owned Corona, and because Anheuser-Busch is successfully introducing new, higher-priced products.

Bud Light Platinum has attracted a younger and more multi-cultural customer than the average beer drinker or the traditional Bud Light consumer. Launched at the start of the year, it's priced at roughly a 30% premium to the Bud Light brand. The company has also introduced Bud Light Lime and Lime a Rita. These new products should help "improve overall volume performance, relative performance and mix," writes Cooper.

The Modelo deal gives AmBev a higher priced beer to sell in many of its global markets. Cooper estimates the opportunity will result in an additional $1 of earnings per share over the upcoming years.

He sees the company earning $4.67 a share this year and $5.08 next year, slightly more conservative than consensus earnings of $4.68 and $5.14 next year. If the company can continue its beer innovation and execute on the Modelo deal surely it'll be Happy Hour.

Hot Bounce

The Dow reversed a four-day slide with Friday's 1.7% rebound, after a report showed 163,000 jobs created in July. The blue chips are up four straight weeks.